Information for Investors January 6, 2019

Is Rent Control on the Horizon?

After the election in November it has become clear that the state-wide ban on rent control will likely be overturned in Oregon. For landlords, just the words “rent control” strikes fear through their hearts. In Portland, rents are finally leveling-off and the real estate market is generally cooling. Adding rent control measures will likely add volatility to an already un-certain market. However, it is important to keep in mind that there are often new opportunities when ill-advised sweeping changes occur.

The biggest question is what will rent control look like? Based on a recent article in the Willamette Week, one aspect of proposed restrictions on the rental market include rental caps of 7% plus inflation. Rent increase restrictions will not mean a collapse of the rental market. In fact, with the market currently cooling the effects of any new laws or ordinances in regards to rent increases might not be truly felt until the next market cycle. I don’t predict rents to increase much beyond inflation anywhere in the Portland-Metro area this year. Furthermore, if you are underwriting the purchase of a rental property and you are predicting 7% rent growth over the holding period, we need to have a serious talk about your blue-sky expectations.

For small-time landlords the most expensive cost of rental property beyond property taxes is turnover. In other words, vacancy is very expensive. And if a landlord owns say, 4-6 units, a unit being vacant for a month really cuts into their bottom line. If rent control creates a situation where many units in Portland are eventually rented at below market rents, the leasehold advantage of the tenant could become so much that there is an incentive to remain in a unit. Over time, these discrepancies between actual and market rents will grow ever wider and lead to less and less vacancy, thus eliminating some significant cost/downside risk to landlords.

Is rent control good for the tenants? Yes and no. It discourages home ownership and I would predict many renters will forgo purchasing a home since they have such a good deal on their rental. But the flip side is these tenants never get on the property ladder which is one of the few ways the middle class can build real wealth and stability. 

I promise to follow what is happening in Salem and congruently what is happening in Portland in regards to rent control.  I think Portland rental property will remain a great investment vehicle going forward. Some investors might get spooked and reposition themselves, so I’ll be watching multifamily inventory as things progress in Salem. I don’t blame investors moving to what many would consider safer markets, but Portland will likely remain a great rental property investment with or without rent control measures. 

Want to know more about the opportunities I see in the investment market this year? Give me a call or shoot me an email. I see a very clear and profitable path forward.

 

 

Information for BuyersInformation for Investors December 12, 2018

The Power of Leverage

Most real estate transactions are leveraged. In other words, the purchaser is using a combination of their own cash with the balance coming from a bank in the form of a mortgage. It is often overlooked how important leverage is and why it is such a critical tool to build wealth. Your dream home may be out of reach now, but with a small real estate investment today, you will be well on your way to use leverage to work your way up the property ladder.

Here is how I turned $10k into $415k in only 6 years through the power of leverage:

I purchased a side-by-side duplex in 2012. My wife and I lived in one side and rented out the other. I used an FHA loan to purchase at $362,000, so I had to come out of pocket $12,670 as a down payment. At the time I purchased, both units were rented and I didn’t move in until 60 days after we closed. By the time we moved in I was out-of-pocket about $10,000 accounting for the collected rent.

Fast forward three years. My wife and I decided it was a good time to buy a new house with a little bit more yard and a bit more square footage. Since buying the duplex, we saw a lot of appreciation and we were able to pull out about $50K in cash via a refinance. We then used that cash as the down payment to purchase the house we currently live in. Fast forward again to today and we have a total value for both properties of about $1.25MM, and we owe the bank about $835K. If we were to sell both properties, we would walk away with $415K (not accounting for Realtor commissions, closing costs, etc. Luckily I know a great Realtor!).

Through the power of leverage, I was able to take $10K and turn it into $415K in six years. Not a bad return on investment! This demonstrates why it is so important for folks to get on the property ladder and how a person can grow significant wealth through real estate. Call me today and lets put a plan together to get you on a similar fast track to wealth!

 I suppose this would be a good time to share a song I wrote back when I was shopping for my duplex. Enjoy!

Information for BuyersInformation for InvestorsInformation for Sellers September 21, 2018

Ambush Market Data Pop Quiz, September Edition

With all the great feedback from our previous “Ambush Market Data Pop Quiz!” video, we decided to make another one! Lots of great data and an e-scooter zipping along a peaceful Irvington streetscape.

If you ever have questions about current market trends and how they relate to your home, please give us a call!

Information for InvestorsInformation for SellersUncategorized August 21, 2018

Changing Markets Create Opportunities

There is a fundamental shift happening in the Portland real estate market where marketing times are expanding, buyers have a few more home choices (and time to think about those choices), and to get top dollar sellers have to rely on full-service agents to properly market their properties and reach the most buyers. The days of putting a sign in the yard and bragging about 12 offers in three days are over.

As the market shifts, opportunities arise. Right now is a great time for real estate investors to evaluate their current position.  One metric that is still solid is prices. An owner’s investment property is worth more now than it ever has ever been worth. In this type of market, it is often a good idea for investors to consider a less is more strategy to increase cash flow.

Less properties can equal more cash flow?!  Why yes, that is precisely what I am saying.  Let’s take a look at this example:

An investor owns ten houses worth $350,000 each and owes $150,000 on each of those properties. That is $2 million in equity. Say that investor’s monthly cash flow (after expenses and debt service) is $600 a month on each property for an aggregate cash flow of $6,000 per month. That investor hires us to sell five of those homes for top dollar allowing them to pay off the five homes they still own which means they now have five houses free and clear worth $1.75 million. Without any mortgage payments, the investor’s new monthly cash flow would increase to $1,450 per unit or $7,250 per month. That is a 20 percent increase!

As investors ourselves, we always have strategies for our investor clients to maximize their returns. Call us today for a free consultation!

Information for Sellers August 10, 2018

Closing Costs for Sellers

Lesser agents don’t discuss closing costs with sellers until the end of the transaction. Typically the conversation happens right about the time the seller receives their estimated settlement statement from the title company and see the thousands of dollars they are coughing up at the closing table. As you can imagine, it is typically not a pleasant conversation!

Generally, the closing costs to the seller will be less that 1% of the sales price. Laws, regulations, and customs vary by state and often by county but in Oregon most fees related to title insurance and escrow are regulated by the state. So these are not things sellers can shop around for to try and save a few bucks. As Realtors, we typically refer our clients to title companies and escrow officers that we know are great communicators and efficiently get deals done.

In Oregon it is customary for the seller to pay for the title insurance policy. The seller is saying to the buyer, “Mr. and Mrs. Buyer, I paid to insure that the property is free and clear of any liens and encumbrances that you don’t know about.”

Beyond the title insurance costs, there are escrow fees. These are expenses related to shuffling the paper around, getting signatures and recording the sale with the county. Oregon buyers and sellers typically split these fees 50/50.

If you ever have a question about how real estate transactions work, don’t hesitate to call us. With over 30 years of combined experience, we have you covered!

Information for Buyers August 2, 2018

When is the Best Time to Buy?

The best time to buy is usually a year before you actually purchase something. The reason is that the greatest strategy to build real wealth in real estate is to buy and hold for a long period of time. It is almost a sure bet and below is a chart that I think really illustrates my point.

Let’s say a person purchased a hypothetical property in 2005 for $100,000, cash. This was the beginning of the run-up to the market peak and based on data from RMLS for the Tri-County area, by August 2007 that property would have seen a peak value of $137,184 and that buyer was feeling groovy.

Then we saw a total market crash and that same property’s value fell to $97,825 by March 2012.  So that buyer is now super bummed, stressed, and feeling far from groovy. In their mind, they have now lost $39,359 in equity. But chin up! They actually only lost $2,175 in equity (purchase price minus current market value). And in terms of actual cash, they have not lost anything since they have not sold the home.

Today, this same house is now worth $180,449. This is 80% above the original purchase price, or about 4.6% annual appreciation. They feel groovy again! Even the folks that purchased at the peak of the bubble in 2007 are feeling groovy!

Current market fundamentals are strong. 30,000-40,000 people are moving to the metro area every year and we are still behind delivering new units since we had essentially zero new inventory during the lean years. On top of that prices are still increasing faster than historical averages and inventory is tight. So my answer to “when is the best time to buy?” Its when a person has their finances in order and are ready to call Carmel and me. Good ol’ fashioned time is the greatest hedge against market instability.

 

Information for BuyersInformation for InvestorsInformation for Sellers July 21, 2018

Ambush Market Data Pop Quiz!

Ambush Market Data Pop Quiz! Where Tyler put Carmel’s market knowledge to the test!